no collapse, but an economic turning point for Europe

The floating LNG terminal “H’egh Gannet”, in the industrial port of Brunsbüttel (Germany), on January 20, 2023. MARCUS BRANDT/PICTURE-ALLIANCE/DPA/AP IMAGES

The predicted catastrophe for the European economy, wanted by the Russian President, Vladimir Putin, has not taken place. A year after the start of the war in Ukraine, the region has suffered a serious setback, but not the collapse feared in the summer of 2022, when gas prices reached record highs. It is currently going through a period of stagnation: 0.1% growth in the euro zone, in the fourth quarter of 2022, and zero for the whole of the European Union (EU). The beginning of 2023 started on the same stagnant trend. “It’s always better than a contraction,” said Bruno Cavalier, economist at Oddo BHF, a financial group, in a note.

However, the war represents a profound and lasting turning point for the European economy. “The continent has had to stop depending on Russian gas and find other sources of energy, it’s a permanent change”, explains Andrew Kenningham, of the firm Capital Economics. The effect of the war is particularly concentrated on Europe, because gas is a less transportable product than oil. Its market is therefore more regionalised.

The economy has therefore held up for the moment despite three major shocks which will leave lasting traces: a drop in competitiveness for European industry, in particular for factories which are very energy-intensive; a fragmentation of supply chains, with a reduction in dependence on Russia, but also – to a lesser extent – ​​on China; and a jump in interest rates, which places Europe facing a wall of debt that is more expensive to repay.

Europe resists the energy crisis

Since the summer of 2022, European political and economic decision-makers have had their eyes fixed on a hitherto obscure indicator: the price of TTF gas, listed in the Netherlands, which serves as a benchmark in Europe. In August, it reached 338 euros per megawatt hour, fifteen times its historical average. Enough to fear a shutdown of the economy. Finally, the crisis was more temporary than expected: Friday, February 17, the TTF was at 48.90 euros, its lowest level for eighteen months, before the start of the war. In total, with one month of winter remaining, there has been no major power outage or gas rationing, despite an 85% drop in Russian gas deliveries to Europe in the fourth quarter of 2022. (compared to the end of 2021).

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The bet of the Russian president, who unilaterally closed the gas supply in the summer of 2022 (with the exception of a few allied countries, including Hungary and Serbia) has largely failed. Partly, Europe was lucky, with a mild winter. But, at the same time, companies and households have succeeded in significantly reducing their consumption. “We had underestimated the flexibility of the economy,” underlines Mr. Kenningham. The result is spectacular: between August and November 2022, EU natural gas consumption fell by 20% compared to its average from 2017 to 2021.

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